Looking Ahead 3-5 Years:
Capacity Growth Less Than Demand Growth
•Capacity lagged demand for past 5 years
•Forecasted gasoline demand implies the need for 1 to 2 MMB/D of added capacity in the next 5 years.
•Improved margins will encourage capacity
•But other environment investment requirements may detract
•New product specifications reduce yield in short term
SGasoline demand increased by an average 139 MB/D for the past five years, while distillation capacity increased about 200 MB/D.  At 50% gasoline yield, the added capacity could have provided 100 MB/D more gasoline.  Thus, imports have risen to make up the difference, and because the imports have been competitively priced, U.S. refineries have run at slightly lower utilizations.

SU.S. gasoline demand forecasts are up, compared to the last 5 years, and are projected to increase about 200 MB/D range per year.  If domestic production were to meet this demand, U.S. capacity would have to increase about 400 MB/D each year, or if imports were to meet half the increased demand, capacity would need to increase by 200 MB/D per year.

SWhile the higher margins this year are likely to encourage capacity increases, the recent low capacity addition rate combined with what is publicly available in the planning and construction pipeline, imply that capacity addition rates may take a few years to reach an annual capacity addition rate over 300 MB/D.

SMoreover, U.S. refiners are dealing with product quality improvements and MTBE bans that are likely to reduce yields, at least in the short run, meaning more imports will be needed.